Contents

Mission Statement & Vision Statement 02
Fund Information 03
Notice of Annual General Meeting 04
Performance Table 06
Directors Report 07
Statement of Compliance with the Code of Corporate Governance 11
Review Report to the Shareholders on the Statement of Compliance with
Best Practices of the Code of Corporate Governance 13

Report of the Shariah Advisor 14
Shariah Compliance Auditors Report to the Shareholders 16
Independent Auditors Report to the Shareholders 17
Statement of Assets and Liabilities 18
Income Statement 19
Distribution Statement 20
Statement of Movement in Equity and Reserves Per Share 21
Cash Flow Statement 22
Statement of Changes in Equity 23
Notes to the Financial Statements 24
Pattern of Shareholding 39
Categories of Shareholders 40
Pattern of Shareholdings as per requirements of the Code of
Corporate Governance 41
Statement of Income & Expenditure of the Investment Advisor
in relation to the Fund 42
Form of Proxy
OurOurVision
Vision
To set standards of best practices
and performance for the industry
through efficient asset allocation and
security selection.

OurOurMission
To be the leading mutual fund in the

Mission
industry, outperforming the benchmark
on a consistent basis, and providing
shareholders with the best combination
of current income and future growth on
a risk adjusted basis.

03
NOTICE OF ANNUAL GENERAL MEETING OF AL MEEZAN
MUTUAL FUND LIMITED TO BE HELD ON MONDAY,
10 SEPTEMBER 2007
Notice is hereby given that the 12th Annual General Meeting of Al Meezan Mutual Fund Limited
will be held at the Registered Office of the Company situated at Ground Floor, Block B, Finance
& Trade Centre, Shahrah-e-Faisal, Karachi, on Monday, 10 September 2007 at 9:30 a.m. to transact
the following business:

Ordinary Business

1. To receive, consider and adopt the Audited Accounts of the Company together with the
report of Directors and Auditors thereon for the year ended 30 June 2007.
2. To approve the payment of final cash dividend @ 25% i.e. Rs.2.5/- per share of Rs.10/- each
for the year ended 30 June 2007 as recommended by the Directors.
3. To consider and approve the issuance of bonus shares @15% i.e 15 shares for every 100
shares held, for the year ended 30 June 2007, as recommended by the Directors.
4. To appoint Auditors and fix their remuneration for the year 2007-2008.
5. To transact any other business with the permission of the Chair.

By order of the Board

Karachi Syed Owais Wasti
1 August 2007 Company Secretary

NOTES:

1. The Share Transfer Books of the Company will remain closed from Monday, 3 September
2007 to Monday, 10 September 2007 (both days inclusive) to determine the entitlement to
cash dividend, as declared by the Board of Directors. Transfers received at THK Associates
(Pvt.) Limited, Ground Floor, State Life Building-3, Dr. Ziauddin Ahmed Road, Karachi,
75530 P.O.Box. 8533 at the close of business hours on Saturday, 1 September 2007 will be
treated in time for this entitlement.
2. A member entitled to attend and vote at this meeting may appoint another member as
his/her proxy to attend and vote on his/her behalf. A Corporation may appoint a person,
who is not a member, as proxy.
3. Proxy forms in order to be effective must be received at the Company's registered office,
situated at Ground Floor, Block B , Shahrah-e-Faisal, Karachi  74400, duly stamped and
signed not less than 48 hours before the meeting.
4. If a member appoints more than one proxy and/ or deposits more than one instrument of
proxy, all such instruments shall be rendered invalid.

04
5. Accountholders/sub-accountholders holding book entry securities of the Company in Central
Depository System (CDS) of Central Depository Company of Pakistan Limited (CDC) who
wish to attend the AGM are requested to please bring their original CNIC/original passport
with a photocopy duly attested by their bankers for identification purposes. In case of
Corporate entity, the Board of Directors resolution/ power of attorney with specimen signature
of the nominee shall be produced (unless it has been provided earlier) at the time of the
meeting.
6. Members are requested to promptly communicate to the Company any change in their
address to ensure prompt delivery of mail.

06
DIRECTORS REPORT
The Board of Directors of Al Meezan Mutual Fund Limited (the Fund) is pleased to present the
audited accounts of the Fund for the year ended 30 June 2007.

Market Review

The two halves of financial year 07 portrayed distinctly different trends. While the first half only
witnessed 0.51% increase in KSE-100 Index due to rumours relating to foreign selling, enforcement
of capital gains tax, investigation of March 2005 crisis and new risk management system, the
second half of the year was much more rewarding. During the second half the KSE-100 Index rose
37% resulting in a full year appreciation of 37.8%.

During the first half, the market touched a peak of 11,566 before collapsing towards the end of
the first half on rumours of a mandatory 4% minimum deposit rate on all banks, IMFs
recommendation on devaluation to the tune of 10%, rumours of substantial foreign sell off in the
market, rumours in applicability of capital gains tax from July 2007, investigation into the March
2005 crisis and uncertainty regarding the new risk management system. However none of the
threats actually materialized.

The unattractive performance of the Pakistani equity markets during first half of financial year
07 was a blessing in disguise as it stood out amongst the regional peers which had done reasonably
well during the same period. This attracted substantial foreign interest which resulted in strong
portfolio inflows to the country. In the last six months of the fiscal year under review, foreign
portfolio inflows in the country amounted to around US$750 million which took the number for
the whole year to roughly US$970 million which was around 3 times higher than the amount
received in fiscal year 2006. The confidence showed by foreign investors in Pakistans economy
and policies despite a noisy political environment also increased the confidence and optimism of
local investors taking the index up by 37% in the last six months of financial year 07.

During the financial year ended 30 June 07, AMMF recorded an NAV based return of 27% versus
market return of 17.16% as measured by Dow Jones JS Pakistan Islamic Index.

13
AMMF = 26.98%
DJII = 17.16%

12

11

10

9
Jun 06 Aug 06 Oct 06 Dec 06 Feb 07 Apr 07 Jun 07

For the year ended 30 June 2007, the Fund earned gross income of Rs. 595 million, main contributors
of which were capital gains of Rs. 176 million and dividend income of Rs. 80 million. After
accounting for expenses of Rs. 48 million and revaluation surplus of Rs. 317 million, the Fund
recorded a net profit of Rs. 547 million for the financial year 06-07. This translates into earnings
per share of Rs. 4.57. The net assets of AMMF as at 30 June 2007 stood at Rs. 2.219 billion which
translates into net asset value per share of Rs. 18.55.

Historically, AMMF had been investing in Shariah compliant avenues and provided good returns
to its investors. However, since the Fund was incorporated as a conventional Fund, its Memorandum
and Articles of Association were altered during the year, so as to bring the same in conformity
with the principles of Shariah and to enable AMMF to purify the income and provide riba free
returns to the investors. Accordingly, an amount of Rs.1.644 million has been set aside to be
disbursed as charity.

The top five holdings of the Fund as on 30 June 2007 based on market value were as follows:

Pakistan Credit Rating Agency (PACRA) has assigned 4-Star rating to AMMF which denotes good
performance of the fund versus its peers. The management of the fund is striving to improve this
rating further in the future.

Investment Policy

The Companys Investment Policy is broadly stated in its Memorandum of Association. It is
intended to be best able to reflect the objectives of growth as well as stability in the companys
return to shareholders. In line with the investment policy stated in the Memorandum, the Company
has the following specific guidelines for its investments.

The Company will maintain at least 60%-80% of its net assets in equities. The rest of the 20%-40%,
depending upon market conditions and interest rate scenario in the economy, will be utilized for
investment in equities or Shariah compliant income investments.

Our aim will be to provide the Fund investors with current income as well as long term growth
potential.

Future Outlook

We remain hopeful of the future prospects of the Fund, given the expected continuation of corporate
profitability and economic growth. Reduction in operational risk of the Pakistani stock market
on account of continuing reforms will also bode well for the market and hence for the Fund, in
the coming years. In the medium term, the market may become jittery close to the upcoming
general elections. However, this is likely to be a short term phenomenon as eventually fundamentally
attractive valuations will retain investor interest.

Compliance with Code of Corporate Governance

Al Meezan Mutual Fund Limited always strives to maintain the highest standards of corporate
governance. In compliance with the code of corporate governance, the Board of Directors declares
that:

· These financial statements present fairly the state of affairs of the Fund, the result of its
operations, cash flows and changes in equity.

· The Fund has maintained proper books of accounts.

· Appropriate accounting policies have been consistently applied in preparation of financial
statements and accounting estimates are based on reasonable and prudent judgment.

· International Accounting Standards and International Financial Reporting Standards as
applicable in Pakistan have been followed in preparation of financial statements.

· The system of internal control is sound in design and has been effectively implemented
and monitored.

· There are no significant doubts upon the Funds ability to continue as a going concern.

· There has been no material departure from the best practices of corporate governance, as
detailed in the Karachi Stock Exchange (KSE) listing regulations.

· The Board of Directors and employees of the Investment Advisor have signed Statement
of Ethics and Business Practices.

09
· Pattern of shareholding along with name wise details for NIT, ICP, Directors, CEO and
their spouses and minor children are given on page 41 of the annual report.

· Financial highlights for the last ten years are given on page 6 of the annual report.

Board Meetings

During the year, four board meetings were held. The detail of the attendance by each director in
the board meetings is as under:

Name Dates of BOD Meetings & Directors presence
therein

16 Aug 06 18 Oct 06 20 Feb 06 24 Apr 06

Mr. Istaqbal Mehdi Chairman ü ü ü ü

Mr. Irfan Siddiqui Director ü ü ü ü

Mr. Ariful Islam Director ü _ _ ü

Mr. Farhan Malik Director _ ü ü ü

Syed Owais Wasti Director ü ü ü ü

Mr. Muhammad Asad Director ü ü ü ü

Mr. Mohammad Shoaib, CFA Chief Executive ü ü ü ü

Appointment of Auditors

The Audit Committee in its meeting held on 1 August 2007 recommended the appointment of
M/s A.F. Ferguson & Co. Chartered Accountants as auditors of the Fund for the financial year
2007-2008. The Board subject to approval by the shareholders in the Annual General Meeting have
recommended their oppointment. The retiring auditors M/s KPMG Taseer Hadi & Co. Chartered
Accountants have been recommended for appointment as auditors of the Investment Advisor to
comply with the requirement of having the same auditor for the parent and the subsidiary company.

Acknowledgement

We thank all our investors who have placed their confidence in us. We also wish to offer our
sincere gratitude to the Securities and Exchange Commission of Pakistan, the Custodian  Central
Depository Company of Pakistan Limited and management of the Karachi Stock Exchange. We
also wish to place on record our appreciation for the auditors and personnel of the Investment
Advisor.
For and on behalf of the Board

Karachi Mohammad Shoaib, CFA
1 August 2007 Chief Executive

10
STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE
GOVERNANCE
This statement is being presented to comply with the provisions of the Code of Corporate
Governance (CCG) as contained in Regulation No. 37 of listing regulations of the Karachi Stock
Exchange (Guarantee) Limited for the purpose of establishing a framework of good governance,
whereby a listed company is managed in compliance with the best practices of corporate governance.

The Fund has applied the principles contained in the CCG in the following manner:

1. The Fund encourages representation of independent non-executive directors. At present the
Board of Directors (BOD) includes four independent non-executive directors.

2. The directors have confirmed that none of them is serving as a director in more than ten listed
companies, including this Fund.

3. All the resident directors of the Fund are registered as tax payers and none of them has
defaulted in payment of any loan to a banking company, a DFI or an NBFC. None of directors
is a member of a stock exchange.

4. No casual vacancy occurred during the year.

5. Al Meezan Investment Management Limited (The Investment Advisor of the Fund), has
prepared a Statement of Ethics and Business Practices, which has been approved and signed
by all the directors of the Fund and has been communicated to the employees of the Investment
Advisor.

6. The BOD has developed a vision and mission statement and an overall corporate strategy
and significant polices of the Fund. A complete record of particulars of significant policies
along with the dates on which they were approved or amended has been maintained.

7. All the powers of the BOD have been duly exercised and decisions on material transactions,
including appointment and determination of remuneration and terms and conditions of
employment of the Chief Executive Officer (CEO) and an executive director have been taken
by the BOD. The CEO and the executive director are remunerated for services by the Investment
Advisor of the Fund.

8. The meetings of the BOD were presided over by the Chairman. The BOD met once in every
quarter during the year ended 30 June 2007. Written notices of the BOD meetings, along with
agendas and working papers, were circulated at least seven days before the meetings. The
minutes of the meetings were appropriately recorded and circulated.

9. The BOD of the Investment Adviser has approved the appointments of the Chief Financial
Officer (CFO) / Company Secretary including his remuneration and terms and conditions of
the employment as determined by the CEO. The internal audit function has been outsourced
to a firm of chartered accountants.

10. The Fund had arranged an orientation course on 15 August 2006 for its directors to apprise
them of their duties and responsibilities.

11
11. The Directors report for the year ended 30 June 2007 has been prepared in compliance with
the requirements of the CCG and fully describes the salient matters required to be disclosed.

12. The financial statements of the Fund were duly endorsed by CEO and CFO before approval
of the BOD.

13. The directors and CEO do not hold any interest in the shares of the Fund, other than those
disclosed in the pattern of shareholding (included in the Directors Report).

14. The Fund has complied with all the corporate and financial reporting requirements of the
CCG.

15. The BOD has formed an Audit Committee. It comprises of three members, two of them are
non-executive directors.

16. The meetings of the Audit Committee were held at least once every quarter prior to approval
of interim and final results of the Fund as required by the CCG. The terms of reference of the
committee have been framed, approved and advised to the committee for compliance by the
BOD.

17. The BOD has outsourced the internal audit function of the Fund to a firm of chartered
accountants.

18. The statutory auditors of the Fund have confirmed that they have been given a satisfactory
rating under the quality control review program of the Institute of Chartered Accountants
of Pakistan, that they or any of the partners of the firm, their spouses and minor children do
not hold shares of the Fund and that the firm and all its partners are in compliance with
International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by
Institute of Chartered Accountants of Pakistan.
19. The statutory auditors or the persons associated with them have not been appointed to provide
other services except in accordance with the listing regulations and the auditors have confirmed
that they have observed IFAC guidelines in this regard.
20. We confirm that all other material principles contained in the CCG have been complied with.

12
REVIEW REPORT TO THE SHAREHOLDERS OF AL MEEZAN
MUTUAL FUND LIMITED ON THE STATEMENT OF COMPLIANCE
WITH BEST PRACTICES OF CODE OF CORPORATE
GOVERNANCE
We have reviewed the Statement of Compliance with the best practices contained in the Code of
Corporate Governance prepared by the Board of Directors of Al Meezan Mutual Fund Limited
to comply with the Listing Regulations No. 37 of the Karachi Stock Exchange, where the Fund is
listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of
Directors of the Fund. Our responsibility is to review, to the extent where such compliance can
be objectively verified, whether the Statement of Compliance reflects the status of the Funds
compliance with the provisions of the Code of Corporate Governance and report if it does not.
A review is limited primarily to inquiries of the Funds personnel and review of various documents
prepared by the Fund to comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the
accounting and internal control systems sufficient to plan the audit and develop an effective audit
approach. We have not carried out any special review of the internal control system to enable us
to express an opinion as to whether the Boards statement on internal control covers all controls
and the effectiveness of such internal controls.

Based on our review, nothing has come to our attention, which causes us to believe that the
Statement of Compliance does not appropriately reflect the status of the Funds compliance, in
all material respects, with the best practices contained in the Code of Corporate Governance
as applicable to the Fund for the year ended 30 June 2007.

Karachi KPMG Taseer Hadi & Co.
1 August 2007 Chartered Accountants

13
REPORT OF THE SHARIAH ADVISOR
Alhamdulillah, the period under review was the first year of Al Meezan Mutual Fund Ltd. (the
Fund) since its legal conversion to complete Shariah compliant operations. The scope of the report
is to express an opinion on the Shariah Compliance of the Funds activities.

In the capacity of Shariah Advisor, we have prescribed a criteria for Shariah compliance of equity
investments which comprises of five factors namely (i) Nature of business, (ii) Interest based Debt
to total assets, (iii) Illiquid assets to total assets, (iv) Investment in non-Shariah compliant activities
and income from non-compliant investments, and (v) Net liquid assets per share vs. share market
price.

It is the responsibility of the Investment Advisor of the Fund to establish and maintain a system
of internal controls to ensure Shariah compliance with the Shariah guidelines. Our responsibility
is to express an opinion, based on our review, to the extent where such compliance can be objectively
verified. A review is limited primarily to inquiries from the Investment Advisors personnel and
review of various documents prepared by the Investment Advisor to comply with the prescribed
criteria.

i. We have reviewed and approved the modes of investments of AMMF in the light of Shariah
requirements. The following is a list of equity investments of AMMF as on 30 June 2007
and their evaluation according to the screening criteria established by us. (The latest half
yearly or annual accounts of the Investee companies available as on 30 June 2007 have
been used for the following calculations):

** These ratios are for the calculation of Non Shariah Compliant Element in the business and are not relivent for Islamic Banks.

In light of the above, we hereby certify that all the provisions of the Scheme and investments
made on account of AMMF by AMIM are Shariah compliant and in accordance with the
criteria established by us.

ii. On the basis of information provided by the management, all operations of AMMF for the
year ended 30 June 2007 have been in compliance with the Shariah principles.

iii. The Investment Advisor has been directed to set aside as charity amount earned where
Investee companies have earned a part of their income from non-compliant sources (e.g.
interest income). In such cases, the Investment Advisor has been directed to set aside as
charity such proportion of the income from Investee companies in order to purify the
earnings of the Fund (as mentioned in column iv of the calculations).

During the year a provision of Rupees 1.644 Million was transferred to charity account.

May Allah bless us with best Tawfeeq to accomplish His Cherished tasks, make us successful in
this world and in the Hereafter, and forgive our mistakes.

15
INDEPENDENT ASSURANCE PROVIDERS REPORT ON SHARIAH
COMPLIANCE TO THE SHARE HOLDERS
We have performed our independent assurance engagement of Al Meezan Mutual Fund Limited
(the Fund) to assess the Funds compliance with the Shariah guidelines prescribed by the Shariah
Advisor in accordance with para 2 and 3 of the Memorandum and Articles of Association
of the Fund during the year ended 30 June 2007.

Investment Advisors responsibility

Investment Advisor of the Fund is responsible for the appointment of Shariah Advisor of the
Fund and for compliance with the Shariah guidelines prescribed by the Shariah Advisor. This
responsibility includes: designing, implementing and maintaining internal control to ensure
compliance with the Shariah guidelines issued by the Shariah Advisor in accordance with para
2 and 3 of the Memorandum and Articles of Association of the Fund.

Responsibility of independent assurance providers

Our responsibility is to express our conclusion on the compliance based on our independent
assurance engagement, performed in accordance with the International Standards on Assurance
Engagements (ISAE 3000) Assurance Engagements Other than Audits or Reviews of Historical
Financial Information. This standard requires that we comply with ethical requirements and plan
and perform the engagement to obtain reasonable assurance whether the Fund has complied with
the guidelines issued by the Shariah Advisor.

The procedures selected depend on our judgment, including the assessment of the risks of material
non-compliances with the Shariah guidelines. In making those risk assessments, we have considered
internal controls relevant to the entitys compliance with the guidelines in order to design our
procedures that are appropriate in the circumstances, for gathering sufficient appropriate evidence
to determine that the Fund was not materially non-compliant with the guidelines. Our engagement
was not for the purpose of expressing an opinion on the effectiveness of the entitys internal
control.

Conclusion

In our opinion, the Fund was, in all material respects, in compliance with the Shariah guidelines
issued by the Shariah Advisor, in accordance with para 2 and 3 of the Memorandum and Articles
of Association of the Fund during the year ended 30 June 2007.

Karachi KPMG Taseer Hadi & Co.
1 August 2007 Chartered Accountants

16
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS
We have audited the accompanying financial statements of Al Meezan Mutual Fund Limited,
which comprise the statement of assets and liabilities as at 30 June 2007 and the income statement,
distribution statement, statement of movement in equity and reserves per share, cash flow statement
and statement of changes in equity for the year then ended, and a summary of significant accounting
policies and other explanatory notes.

Managements responsibility for the financial statements
Investment Advisor of the Fund is responsible for the preparation and fair presentation of these
financial statements in accordance with the requirements of the Companies Ordinance, 1984, Non-
Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) and
approved accounting standards as applicable in Pakistan. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.

Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards as applicable in Pakistan. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements give a true and fair view of the state of the Funds affairs
as at 30 June 2007, and of its financial performance, cash flows and transactions for the year then
ended in accordance with approved accounting standards as applicable in Pakistan.

Other matters
In our opinion, the financial statements have been prepared in accordance with the relevant
provisions of the NBFC Rules.

The financial statements of the Fund for the year ended 30 June 2006 were audited by another
firm of Chartered Accountants who vide their report dated 16 August 2006 issued an unqualified
report thereon.

Net cash outflow from financing activities (358,456) (90,414)
Net increase / (decrease) in cash and cash equivalents during the year 561,141 (453,541)
Cash and cash equivalents at the beginning of the year 29,382 482,923
Cash and cash equivalents at the end of the year 590,523 29,382

The annexed notes 1 to 23 form an integral part of these financial statements.

Mohammad Shoaib, CFA Farhan Malik
Chief Executive Director

22
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2007
Surplus on
revaluation
Share capital Unappropriated of
Total Total
profit available-for-
sale financial
assets
------------------------------(Rupees in 000)------------------------------

The annexed notes 1 to 23 form an integral part of these financial statements.

Mohammad Shoaib, CFA Farhan Malik
Chief Executive Director

23
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2007

1. LEGAL STATUS AND NATURE OF BUSINESS

Al Meezan Mutual Fund Limited (the Fund) was incorporated in Pakistan on 13 July 1995
as a public limited company under the Companies Ordinance, 1984 and is listed on the
Karachi Stock Exchange. The Fund is registered as an 'Investment Company' under the Non-
Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) vide
License no. NBFC -II\11 AMMFL-IC-04\05 issued by the Securities and Exchange Commission
of Pakistan (SECP). The Fund's registered office is at Finance and Trade Centre, Shahrah-
e-Faisal, Karachi. The object of the Fund is to carry on the business of a closed-end mutual
fund and to invest its assets in securities, which are listed or proposed to be listed on the
stock exchanges.

The Fund has an agreement with Al Meezan Investment Management Limited, an associated
undertaking, to provide Investment Advisory services.

The purpose of the Fund is to provide a vehicle where the investors can invest their funds
in securities under the management of Al Meezan Investment Management Limited (the
Investment Advisor) subject to the general control and directions of the Board of Directors
and as per the guidelines by the Shariah Advisor. The objective of the Fund is to provide
superior results through investment in quality growth stocks, though the funds may be
invested in other stocks. It may also take a significant position of investments in other
securities listed on a stock exchange e.g modaraba certificates, sukkuk bonds, murahaba,
musharakah etc., from time to time to protect against capital losses when the stock market
appears vulnerable. Selection of securities for portfolio will be based, as far as possible on
their potential capital appreciation possibilities.

The Funds investment policy with its emphasis on investing in securities for their potential
capital appreciation possibilities which may involve a substantially greater portfolio turnover
for capital gains.

2. BASIS OF PRESENTATION

The transactions undertaken by the Fund in accordance with the process prescribed under
the Shariah Guidelines issued by the Shariah Advisor are accounted for on substance rather
than the form prescribed by the earlier referred guidelines. This practice is being followed
to comply with the requirements of approved accounting standards as applicable in Pakistan.

3. STATEMENT OF COMPLIANCE

3.1 These financial statements have been prepared in accordance with the requirements of
approved accounting standards as applicable in Pakistan, the requirements of the Companies
Ordinance, 1984, Non-Banking Finance Companies (Establishment and Regulation) Rules,
2003 (NBFC Rules) and the directives issued by the Securities and Exchange Commission
of Pakistan. Approved accounting standards comprise of such International Accounting
Standards (IAS) and International Financial Reporting Standards (IFRS) as notified under
the provisions of the Companies Ordinance, 1984. Wherever the requirements of these
standards, the requirements of the Companies Ordinance, 1984, the NBFC Rules and the
said directives differ with the requirements of these standards, the requirements of the
Companies Ordinance, 1984, the Non-Banking Finance Companies (Establishment
and Regulation) Rules, 2003 (NBFC Rules) and the said directives take precedence.

24
3.2 New accounting standards and IFRIC interpretations that are not yet effective
The following standards, amendments and interpretations of approved accounting standards
are only effective for accounting periods beginning on or after 1 July 2007 and are not
relevant to the Fund's operations or are not expected to have significant impact on the Fund's
financial statements other than certain increased disclosures in certain cases:

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements
are set out below. These policies have been consistently applied to all the periods presented
unless otherwise stated.

4.1 Basis of preparation
These financial statements have been prepared under the historical cost convention, except
for investments and derivatives which are carried at fair value.

4.2 Critical accounting estimates and judgments
The preparation of financial statements in conformity with the approved accounting standards
requires the Investment Advisor to make judgments, estimates and assumptions that affect
the application of policies and the reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experiences and
various other factors that are considered to be reasonable under the circumstances, the
results of which form the basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Judgment made by the Investment Advisor in the application of the approved accounting
standards that have a significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year is as follows:

Fair values of financial instruments
The fair value of investment in marketable securities is based on the closing market prices
ruling at the day-end. The Investment Advisor is of the view that the fair market values of
the financial assets and liabilities are not significantly different from their carrying values
since assets and liabilities are essentially short-term in nature.

25
4.3 Financial instruments

(i) Classification

The Fund classifies its debt and equity investments and related derivatives in the following
categories:

a) Financial instruments 'at fair value through profit or loss'

A financial instrument 'at fair value through profit or loss' is a financial asset or
financial liability that meets either of the following conditions;

i) Financial instruments 'held for trading'

A financial instrument is classified as 'held for trading' if it is:

- acquired or incurred principally for the purpose of selling or repurchasing it in
short term;

- part of a portfolio of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit taking; or

- a derivative.

All derivatives in a net receivable position (positive fair value), are reported as financial
assets held for trading. All derivatives in a net payable position (negative fair value),
are reported as financial liabilities held for trading.

A financial instrument may be designated when initially recognised as a 'financial
asset or financial liability at fair value through profit or loss' except for investments
in equity instruments that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured.

Financial instruments that do not fall under the aforementioned category are loans
and receivables originated by the enterprise and 'available-for-sale' financial assets
which are as follows:

b) Loans and receivables originated by the enterprise

Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market, other than:

- those that the entity intends to sell immediately or in the near term, which shall be
classified as held for trading', and those that the entity upon initial recognition
designates as at fair value through profit or loss;

- those that the entity upon initial recognition designates as 'available-for-sale'; or

- those for which the holder may not recover substantially all of its initial investment,
other than because of credit deterioration, which shall be classified as available-for-
sale.

26
c) Available-for-sale

Available-for-sale' financial assets are non-derivatives that are either designated in
this category or not classified in any of the other categories.

(ii) Recognition

The Fund recognises financial assets and financial liabilities on the date it becomes a
party to the contractual provisions of the instrument.

A regular way purchase of financial assets is recognised using trade date accounting.
From this date, any gains and losses arising from changes in fair value of the financial
assets or financial liabilities are recorded.

Financial liabilities are not recognised unless one of the parties has performed its part
of the contract or the contract is a derivative contract.

(iii) Measurement

Financial instruments are measured initially at fair value (transaction price) plus, in
case of a financial instrument not at fair value through profit or loss', transaction costs
that are directly attributable to the acquisition or issue of the financial instrument.
Transaction costs on financial instrument at fair value through profit or loss are
expensed out immediately.

Subsequent to initial recognition, financial instruments classified as 'at fair value
through profit or loss' and 'available-for-sale' are measured at fair value. Gains or
losses arising, from changes in the fair value of the financial assets at 'fair value through
profit or loss are recognised in the Income Statement. Changes in the fair value of
financial instruments classified as 'available-for-sale' are recognised in equity until
derecognised or impaired, when the accumulated fair value adjustments recognised
in equity are included in the Income Statement. Financial instrument that is not quoted
on the stock exchange is measured at cost as per NBFC Rules.

Financial assets classified as loans and receivables are carried at amortized cost using
the effective yield method, less impairment losses, if any.

Financial liabilities, other than those at fair value through profit or loss, are measured
at amortized cost using the effective yield method.

(iv) Fair value measurement principles

The fair value of marketable securities and derivatives is based on their price quoted
on the Karachi Stock Exchange at the balance sheet date without any deduction for
estimated future selling costs. Financial assets and financial liabilities are priced at
their fair market value.

(v) Impairment

Financial assets not carried at fair value through profit or loss' are reviewed at each
balance sheet date to determine whether there is objective evidence of impairment.
If any such indication exists, an impairment loss is recognised in the Income Statement.

If in a subsequent period, the amount of an impairment loss decreases, the reduction
in impairment loss on financial asset other than equity securities classified as 'available-
for-sale' are recognised in the Income Statement. However, the decrease in impairment
loss on equity securities classified as 'available-for-sale is recognised in equity.

27
(vi) Derecognizing

The Fund derecognises a financial asset when the contractual rights to the cash flows
from the financial asset expire or it transfers the financial asset and the transfer qualifies
for derecognition in accordance with IAS 39, 'Financial Instruments: Recognition and
Measurement'. The Fund uses the weighted average method to determine realised
gains and losses on derecognition.

A financial liability is derecognised when the obligation specified in the contract is
discharged, cancelled or expired.

4.4 Provisions
Provisions are recognised when the Fund has a present legal or constructive obligation as
a result of past events and it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate of that obligation
can be made. Provisions are regularly reviewed and adjusted to reflect the current best
estimate.

4.5 Net assets value per share
The net assets value (NAV) per share is calculated by dividing the net assets of the Fund
by the number of shares in issue (paid up capital).

4.6 Taxation
Current
The income of the Fund is exempt from income tax under clause 99 of part I of the second
schedule to the Income Tax Ordinance, 2001, subject to the condition that not less than ninety
percent of its accounting income for the year, as reduced by capital gains, whether realised
or unrealised, is distributed among the shareholders.
Deferred
The Fund provides for deferred taxation using the balance sheet liability method on all
major temporary differences between the amounts used for financial reporting purposes
and amounts used for taxation purposes. In addition, the Fund also records deferred tax
assets on unutilised tax losses to the extent that these will be available for set off against
future taxable profits.
However the Fund has distributed and intends to continue availing the tax exemption by
distributing at least ninety percent of its accounting income for the year as reduced by capital
gains, whether realised or unrealised to its shareholders every year. Accordingly, no current
and deferred tax has been recognised in these financial statements.

4.7 Revenue recognition
Gains / (losses) arising on sale of investments are included in the Income Statement on the
date at which the transaction takes place.
Unrealised gains / (losses) arising on revaluation of securities classified as at 'fair value
through profit or loss' are included in the Income Statement in the period in which they
arise.
Gains / (losses) arising on the revaluation of the derivatives to the fair value are taken to the
Income Statement.
Dividend income is recognised when the right to receive the payment is established.
Profit on deposit accounts with banks and all investments in debt instruments (irrespective
of classification) are recognised on an effective yield rate method.

28
4.8 Expenses

All expenses, including Investment Advisor fee and Custodian fee are recognised in the
Income Statement on an accrual basis.

4.9 Offsetting of financial instruments

A financial asset and financial liability are set off and the net amount is reported in the
Statement of Assets and Liabilities if the Fund has a legal right to set off the transaction and
also intends either to settle on a net basis or to realise the asset and settle the liability
simultaneously.

4.10 Zakat

Shares held by resident Pakistani shareholders are subject to zakat at 2.5% of the nominal
value or the market value based on the closing rate at the Karachi Stock Exchange, whichever
is lower, of share under the Zakat and Ushr Ordinance, 1980 (XVII of 1980), except those
exempted. Zakat is deducted at source from the dividend amount.

4.11 Transactions with connected persons

Transactions between the Fund and its connected persons as defined in the NBFC Rules are
carried out on an arm's length basis substantiated in a manner set out in note 16.

4.12 Cash and cash equivalents

Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid
investments that are readily convertible to known amounts of cash, are subject to an
insignificant risk of changes in value, and are held for the purpose of meeting short-term
cash commitments rather than for investment or other purposes.

4.13 Dividend

Dividend declared subsequent to the balance sheet date is considered as a non-adjusting
event and is recognised in the period in which it is authorised or approved.

5.1 These represent deposits payable on demand and carry return at approximately 3% to 9.5%
per annum (2005: 2.5% to 8.15% per annum).

29
6. INVESTMENT IN MARKETABLE SECURITIES
- classified as investments 'available-for-sale'
Percentage in relation to
net assets of paid-up
Market Unrealised
Purchases Bonus/ Sales Cost as at the Fund on the capital of total market
As at 1 As at 30 value as at gain as at
during the rights during the 30 June basis of market investee value
Name of the investee company July 2006 June 2007 30 June 30 June
year issue year 2007 value of company (carrying
2007 2007
investments (with face value of
(see note 7.1.2 value of investments)
-------------------Number of shares------------------- Rupees in 000 below) investments)

Held for trading 7.1 1,551,853 1,693,982
Investments 'at fair value through profit or loss upon
initial recognition'.
7.2 - 4,285
1,551,853 1,698,267
7.1 'Held for trading '
Percentage in relation to
Carrying Market Unrealised Net assets of Paid-up
Purchases Bonus/ Sales Cost as at Total market
As at 1 As at 30 value as at gain/loss the Fund on the capital of
during the rights during the 30 June as at basis of market investee value
Name of the investee company July 2006 June 2007 30 June
year issue year 2007 30 June value of company (carrying
2007
2007 investments (with face value of
(see note 7.1.2 value of investments)
-------------------Number of shares------------------- Rupees in 000 below) investments)

30
Percentage in relation to
Carrying Net assets of Paid-up
Market Unrealised
Purchases Bonus/ Sales Cost as at the Fund on the capital of Total market
As at 1 As at 30 value as at gain as at
during the rights during the 30 June basis of market investee value
Name of the investee company July 2006 June 2007 30 June 30 June
year issue year 2007 value of company (carrying
2007 2007
investments (with face value of
(see note 7.1.2 value of investments)
-------------------Number of shares------------------- Rupees in 000 above) investments)

7.1.1 All shares have a face value of Rs. 10 each except for the shares of Agriauto Industries Limited and Thal Limited which have
a face value of Rs. 5 each.
7.1.2 Net assets are as defined in Rule. 2(xxxiv) of NBFC Rules.
7.1.3 SECP through its letter NO. NBFC-II/ AD/ AMIML/ 406 dated 12 June 2007 has increased the investment limits prescribed
in Rule 49(3) and (4) of the NBFC Rules to fifteen percent
and thirty percent respectively.

Paid-up
Purchases Sales Redemptio Cost as at Net assets of capital of
As at 1 As at 30 Total market
during the during the ns during 30 June the Fund investee
Name of the investee company July 2006 June 2007 value (carrying
year year the year 2007 (with market company
value of
value of (with face
investments)
investments) value of
investments)
--------------Number of certificates------------- Rs. in 000

Under the provisions of the NBFC Rules, the Investment Advisor is entitled to a remuneration
of an amount not exceeding three percent of the average annual net assets of the Fund
during the first five years of the Funds existence and thereafter an amount equal to two
percent of such assets of the Fund. The remuneration of the Investment Advisor has been
charged at the rate of 2% per annum of the average net assets of the Fund for the year ended
30 June 2007.

11. PAYABLE TO CENTRAL DEPOSITORY COMPANY OF PAKISTAN LIMITED -
CUSTODIAN OF THE FUND

The custodian is entitled to a monthly remuneration for services rendered to the Fund under
the provisions of a custodial sevices agreement in accordance with the tariff specified therein.

12. PAYABLE TO SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN (SECP)

This represents proportionate annual fee at the rate of one tenth of one percent of the average
annual net assets of the Fund, payable to SECP under Rule 54 of the NBFC Rules.

13.1 According to the instructions of the Shariah Advisor, any income earned by the Fund from
investments whereby portion of the investment of such investees has been made in non-
shariah compliant avenues, such proportion of income of the Fund from that investee should
be given away for charitable purposes directly by the Fund. Accordingly, an amount of Rs.
1.644 million has been recognised as charity payable. No charity has been paid to any
charitable institution during the year.
14. AUDITORS' REMUNERATION
Note 2007 2006
(Rupees in 000)

* There is no effect of dilution during the year.
16. TRANSACTIONS WITH CONNECTED PERSONS / RELATED PARTIES

The connected persons include Al Meezan Investment Management Limited being the
Investment Advisor, Central Depository Company of Pakistan Limited being the Custodian,
Meezan Bank Limited being the holding company of the Investment Advisor, Pakistan
Kuwait Investment Company (Private) Limited and Meezan Islamic Fund, Meezan Islamic
Income Fund, Meezan Tahaffuz Pension Fund and Meezan Balanced Fund being the Funds
under the common management of the Investment Advisor.

Transactions with connected persons are in the normal course of business, at contracted
rates and terms determined in accordance with the NBFC Rules, Companies Ordinance,
1984.

33
Remuneration payable to the Investment Advisor and the Custodian is determined in
accordance with the provisions of the NBFC Rules and the Custodial Services Agreement
respectively.

Balance at the beginning of the year 39,928 26,382
Remuneration for the year 38,340 39,928
78,268 66,310
Amount paid during the year (39,928) (26,382)
Balance at the end of the year 38,340 39,928
Investment in 19,787,559 shares (2006: 19,787,559 shares) 300,771 294,835
Dividend for the year ended 30 June 2006 (comparative 30 June 2005) 58,671 14,841

Central Depository Company of Pakistan Limited
Balance at the beginning of the year 85 -
Remuneration for the year 1,308 2,070
1,393 2,070
Amount paid during the year (1,280) (1,985)
Balance at the end of the year 113 85

* This represents the effective rate of return on TFCs of Al Zamin Leasing Modarba-II and Sitara Chemical Industries Limited.

35
18. RISK MANAGEMENT

The Fund is primarily an equity fund which invests both in high quality equity securities
and in Islamic income instruments. Investment in equity securities carries a risk that is
considered higher than that of investment in debt securities. The risk emanates from various
factors that include, but are not limited to market, credit, liquidity and market rate of return.

18.1 Market risk

Market risk is the risk of volatility in share prices resulting from their dependence on market
sentiments, speculative activities, supply and demand for shares and liquidity in the market.
The value of investments may fluctuate due to change in business cycles affecting the
business of the company in which the investment is made, change in business circumstances
of the company, industry environment and / or the economy in general.

The Funds strategy on the management of investment risk is driven by the Funds investment
objective. The primary objective of the Fund is to provide the maximum return to the
shareholders by maintaining a balance between equity securities and Shariah Compliant
income instruments. The Fund, in addition to equities, deferred sale transactions and riba-
free bank deposits, is also permitted to place funds in Islamic TFC's, Islamic Sukuk certificates,
other Islamic investments and other asset backed securities allowed by SECP and confirmed
by the Fund's Shariah Advisor. Fund is allocated among various asset classes based on the
attractiveness of the particular asset class.

The fund follows a policy of value investing, in which major emphasis is placed on the
investee company's growth prospects and / or dividend yield. The market risk is managed
by monitoring exposure to marketable securities, following the internal risk management
policies and regulations laid down in NBFC Rules. The risk is also mitigated by investing
consistently in dividend paying companies having growth prospectus and securities which
are actively traded in the stock exchange.

18.2 Credit risk and concentration of credit risk

Credit risk is the risk that a counterparty of financial instruments will fail to discharge an
obligation or commitment that it has entered into with the Fund. The Funds Investment
Manager has a credit policy in place and the exposure to credit risk is monitored on an
ongoing basis.

At 30 June 2007, the financial assets that are exposed to credit risk are investments in debt
instruments, amounts receivable from brokers against sale of investments, derivative
financial assets and other receivables. The total carrying amount of financial assets exposed
to credit risk amounted to Rs. 78.814 million (2006: Rs. 290.982 million).

Credit risk arising on debt instruments is mitigated by investing in rated instruments or
instruments issued by rated counterparties of credit ratings of at least A. The Fund receives
a monthly rating update, against which investments are reviewed. Credit risk arising on
other financial assets is monitored through a regular analysis of financial position of brokers
and others.

Concentration of credit risk exists when changes in economic and industry factors similarly
affect groups of counter parties whose aggregate credit exposure is significant in relation
to the Fund's total credit exposure. The Fund's portfolio of financial instruments is broadly
diversified and transactions are entered into with diverse credit worthy counter parties
thereby mitigating any significant concentrations of credit risk.

36
18.3 Liquidity risk

Liquidity risk is the risk that the Fund may encounter difficulty in raising funds to meet its
obligations and commitments. The Fund manages the liquidity risk by maintaining maturities
of financial assets and financial liabilities and investing a major portion of the Funds assets
in highly liquid financial assets.

18.4 Market rate of return (MROR) risk

MROR risk is the risk that the value of a financial instrument will fluctuate due to changes
in the market interest rates. The Fund exposed to an insignificant MROR risk as it makes
investments in equity securities.

19. FAIR VALUE OF FINANCIAL INSTRUMENTS

As the assets and liabilities are essentially short term in nature the carrying values of all
financial assets and liabilities reflected in the financial statements approximate to their fair
values.

The Board of Directors in its meeting held on 1 August 2007 has recommended a cash
dividend of 25% (2006: 30%) amounting to Rs. 299 million (2006: Rs. 358.8 million) and the
issuance of bonus shares @ 15% i.e. 15 shares for every 100 shares held. The financial
statements for the period ended 30 June 2007 do not include the effect of these appropriations
which will be accounted for in the financial statements for the year ending 30 June 2008.

22. DATE OF AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS

These financial statements have been authorised for issue on 1 August 2007 by the board
of directors of the Fund.

23. GENERAL

23.1 Comparative figures have been rearranged and reclassified for the purpose of comparison
and better presentation. The significant reclassifications are as follows:

Payable to the Central Depository
Custodian charges Trade and other payables Company of Pakistan Limited - 85
Custodian of the Fund

Payable to the Securities and
Annual fee payable to SECP Trade and other payables 1,997
Exchange Commission of Pakistan

Amount
Particulars From To (Rupees. in 000 )

Accrued expenses and other
Accrued expenses Trade and other payables 528
liabilities

Unclaimed dividend Dividend payable Unclaimed dividend 1,119

Unrealised gain / (loss) on Unrealised (loss) / gain on held for Unrealised gain / (loss) on
investments at fair value through trading investments for the year - investments at fair value through (85,881)
profit or loss net profit or loss

In addition to above, some changes were made to the narrations of expenses and income disclosed in the Income
Statement.

Note: Other revenue not relating to the Fund has not been included in the above statement.

42
FORM OF PROXY
TWELFTH ANNUAL GENERAL MEETING
I/We of
being a member(s) of Al Meezan Mutual Fund Limited and holders of
Ordinary Shares as per Share Register Folio No.
(For beneficial owners as per CDC List)
CDC Participant I.D. No. Sub-Account No.

CNIC NO. or Passport No.

hereby appoint of
or failing him / her of
as my / our proxy to vote and act for me / our behalf at the Twelfth Annual General Meeting of
the Company to be held on 10 September 2007 or at any adjournment thereof.

Signed on (Signatures should agree
Rs. 5/- with the specimen signature
Revenue Stamp registered with the Company)

Signature of Shareholder
Dated this day of 2007 Signature of Proxy

For beneficial owners as per CDC list
1. WITNESS 2. WITNESS
Signature: Signature:
Name: Name:
Address: Address:
CNIC No. CNIC No.
or Passport No. or Passport No.
Note:
1. Proxies, in order to be effective, must be received at the Registered Office of the Company at Ground
Floor, Block B, Finance & Trade Centre, Shahrah-e-Faisal, Karachi-74400 not less than 48 hours before
the meeting.

2. CDC Shareholders and their Proxies are each requested to attach an attested photocopy of their CNIC
or Passport with the proxy form before submission to the Company (Original CNIC / Passport is
required to be produced at the time of the meeting).

3. In case of corporate entity, the Board of Directors resolution / power of attorney with specimen signature
shall be submitted (unless it has been provided earlier) alongwith proxy form to the Company.